Worst deal in state history?

Scott Walker wants taxpayers to pay $3 billion to Foxconn for locating a new plant in the Racine-Kenosha area. That is $585 per person for every adult in Wisconsin, with perhaps as much as $300 million coming from residents of Dane County. And what will they get for this?

Normally, there would be a return to the state treasury from future taxes paid. Thus, when Gov. Jim Doyle was giving incentives to a company like Harley-Davidson to expand employment, the tax incentive was 7 percent of the additional company payroll for up to nine years, and since average workers pay slightly more than 5 percent in income taxes, the state would be made whole in about 12 years. And that doesn’t include the corporate income tax paid by Harley.

But the Foxconn deal gives away taxpayer dollars in a style unprecedented in state history: Foxconn will get a tax credit for 17 percent of its payroll, and for 15 years, not nine. In short, the state will get less than 30 percent of the tax credit back in income taxes paid by workers, losing a huge amount of money for 15 straight years.

But the state’s Foxconn deal offers much more. The company also gets a 15 percent tax credit on all capital expenditures for seven years. Since Foxconn, due to Walker’s Manufacturing and Agriculture Tax Credit, will pay little or no corporate tax, probably none of this giveaway will be recovered. Indeed, the company is being given “refundable tax credits,” essentially cash giveaways, not tax cuts.

But the deal offers still more. Foxconn receives a sales tax exemption on the cost of all building materials, supplies, and equipment, landscaping and lawn maintenance services, estimated to be worth $139 million.

And still more. Local governments will be pressured to create Tax Incremental Financing (TIF) districts, which are expected to offer such massive subsidies that the Foxconn bill provides an exemption from the law limiting the size of such districts.

And still more. The bill exempts Foxconn from some state requirements on discharging materials into a wetland, water quality certification, constructing bridges or culverts in or over navigable waters, dredging or enlargement of an artificial water body connecting to a navigable waterway, grading or removal of topsoil, and high-voltage transmission line relocations.

In short, Foxconn may operate as a kind of outlaw company that ignores laws regulating every other business or individual in the state. And that is because it promises to create up to 13,000 jobs in return for accepting $3 billion plus in tax subsidies.

And what guarantee is there of these 13,000 jobs? None. The company could collect $345 million of the maximum $1.5 billion payroll credit for just the 3,000 jobs it promises to start with and use the $1.35 billion tax credit on capital expenditures to automate the factory and greatly reduce employment. With no penalty. And given Foxconn’s reputation for embracing robotics at every opportunity, that is surely the most likely result.

And the cost to the state under this scenario would be $611,000 per job.

And how many of those jobs will be family supporting? Foxconn claims the average wage paid will be $53,875, but what guarantee is there of this? None. And even if the company meets this average, that could mean half the workers earn less than this. How much less? The legislation originally said the payroll tax credit applies for jobs earning at least $22,620, which is below the poverty line for a family, but the cutoff may be raised to $30,000, which is at about 130 percent of the poverty line.

These details come from a recent Legislative Fiscal Bureau analysis, which concludes the state might recoup the massive Foxconn giveaway by 2043, a quarter-century from now. But how can the money be recouped when it is far more than the combined taxes paid by workers and the company? The answer is that Foxconn projects it will create spin-off jobs from suppliers, construction companies and the like that it uses. But if we followed this approach for every company in Wisconsin, it would wipe out all the corporate and personal income taxes paid in this state.

The Legislative Fiscal Bureau cautions that the data on spin-off jobs is “speculative.” It also estimates that 10 percent of Foxconn’s jobs could go to workers commuting from Illinois who won’t pay Wisconsin taxes, extending the payback period to 2045. It also notes its analysis hasn’t reduced the value of future dollars, meaning the real dollar payback would occur even later, perhaps after 2050.

And of course there’s no guarantee that long before this, Foxconn won’t slash the payroll, leave the state or go out of business.

Has there ever been a worse deal proposed by a Wisconsin governor? Walker’s wildly liberal giveaway of tax dollars suggests a desperation to wipe away his failed promise to create 250,000 new jobs and the state’s consistent below-average ranking in job creation. For $3 billion in taxes, the governor gets a dramatic new campaign slogan.